IFR International - 20.10.2018

HSBC ponders China listing – again

„ Equities UK bank could be first to issue CDRs under new Connect scheme

BY THOMAS BLOTT

HSBC is considering issuing
Chinese depositary receipts
through the Shanghai-London
Connect scheme, potentially
MAKINGûITûTHEûlRSTûCOMPANYûTOû
ISSUEû#$2SûUNDERûTHEûNEWû
trading link as regulators gear
up for its launch by year-end.
“We are studying the
proposed framework for the
listing of Chinese depositary
receipts under the Shanghai-
London Stock Connect but
cannot comment further at
this time,” a spokesperson for
the bank said.
(3"#ûISûTHEûlRSTû5+
BASEDû
COMPANYûTOûCONlRMûITûISû
CONSIDERINGûISSUINGû#$2Sû
through the Connect scheme.
HSBC Qianhai Securities, its
Chinese investment banking
joint venture, and Citic
Securities are working on the
deal, with the size and
timeframe still to be decided.
The emerging markets
lender has been a
longstanding champion of
Beijing’s efforts to open up its
domestic share market to
international issuers and
investors, and has previously
looked at various different
methods for raising equity
capital in China.
Plans for a domestic
Chinese listing date back
to at least 2001, when HSBC
was one of a handful of Hong
+ONG
LISTEDûlRMSûTOûCONSIDERû
raising money onshore
THROUGHû#$2S

In 2009, it even hired

Chinese underwriters for a

planned listing on Shanghai’s

international board, although

that plan was eventually

aborted as the scheme failed to

make any headway.

A potential listing from

Europe’s largest bank would

serve as a welcome boost for

China, which has seen its

benchmark Shanghai Composite

)NDEXûLOSEûMOREûTHANûûOFûITSû

value in the year to-date and a

PROPOSEDû#$2ûISSUANCEûFROMû

Chinese smartphone maker

Xiaomi under a different scheme

postponed.

NEW RULES

On October 12, the China

Securities Regulatory

Commission issued its rules

for the Shanghai-London

scheme following a public

consultation. On the same day,

THEû3HANGHAIû3TOCKû%XCHANGEû

issued a public consultation on

the practical implementation,

which ended last Friday.

China’s securities regulator

previously said it would

“strive” to launch the trading

link by the end of the year,

echoing comments made by Yi

'ANGûGOVERNORûOFûTHEû0EOPLESû

Bank of China.

5NLIKEûEXISTINGûTRADINGûLINKSû

BETWEENû(ONGû+ONGûANDû

bourses in Shanghai and

Shenzhen, Shanghai-London

Connect will only allow

investors to buy stocks

indirectly in the form of

depositary receipts.

Companies listed on the

,ONDONû3TOCKû%XCHANGEûWILLûBEû

ABLEûTOûISSUEû#$2SûONûTHEû33%û

while SSE-listed companies will

issue global depositary receipts

on the LSE. LSE-listed companies

CANûONLYûISSUEû#$2SûBACKEDûBYû

EXISTINGûSHARESûWHEREASû#HINESEû

companies are able to issue

'$2SûBACKEDûBYûNEWûSHARES

The latest set of documents

remain largely unchanged from

the CSRC’s draft version in

August. One notable difference

is that the securities regulator

has shortened the lock-up

period, meaning investors will

be able to swap their London-

listed depositary receipts for

ordinary company stock from

120 days after a new listing,

DOWNûFROMûSIXûMONTHSûINûTHEû

draft.

The SSE’s guidelines state

that London-listed companies

would need to meet a minimum

#$2ûISSUANCEûTHRESHOLDûOFû

Rmb500m (US$72.1m). They

also state that issuers would

need to have been listed on the

LSE for at least three years and

at least one year on the

“mainboard”, which analysts

have interpreted as possibly

referring to being a constituent

OFûTHEû&43%ûûINDEX

NO SHOCKS

Both the CSRC’s rules and the

consultation leave open various

questions about the operation of

the new trading link, such as

whether there will be any

overlap in trading hours

between the depositary receipts

and the underlying securities

and how the different

settlement systems will be

reconciled.

Most observers opted to focus

on the positives, however.

“The details that have come

out are probably not enough to

provide investors, or brokers,

with full clarity about how it

WILLûALLûWORKvûSAIDû'ARYû/"RIENû

head of custody product for

!SIA

0ACIlCûATû".0û0ARIBASû

Securities Services.

“What I would say though is

the importance of these rules is

not just the changes but what

THEYûCONlRMûFROMûTHEûPREVIOUSû

consultation. The fact that there

are no major shocks is

encouraging as it shows the

regulators have a carefully

thought-out operating model.”

The shortening of the lock-up

PERIODûFORûCONVERTINGû'$2SûINTOû

local shares is welcome news for

Chinese broker HUATAI SECURITIES,

which last month announced

that it was planning to raise at

least US$500m from the sale of

'$2Sû3OURCESûPREVIOUSLYûTOLDû

)&2ûTHATûTHEûSIX

MONTHûLOCK

UPû

period was a concern.

Huatai, which is the only

#HINESEûISSUERûSOûFARûTOûCONlRMû

its plans to raise capital through

the new trading link, plans to

sell around 825m A-shares, or

10% of its share capital, as

underlying securities for the

'$2Sû!SûOFûLASTû4HURSDAYû

Huatai had a market

capitalisation of Rmb107.4bn.

JP Morgan and Morgan Stanley

are working on the issuance. „

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